By Gonzalo Martínez Mosquera
Important news week in The Savior. The Supreme Court of that country reversed a 2014 ruling that prohibited presidential reelection, which would enable Nayib bukele to have another term from 2024. Something smells very bad, because the judges who made that decision were appointed on May 1 after the congress dismissed the previous magistrates.
It’s the same Bukele that drove Bitcoin as legal tender in their country in a measure that generated great controversy, both among the citizens of that country and in the crypto ecosystem. The demonstrations Against the digital currency they did not wait, Salvadorans want the sound and crisp dollar and are not willing to accept a crypto that they do not understand, nor do they know where it comes from.
In any case, the moment of truth finally arrived and yesterday the Bukele project became a reality and Bitcoin began to circulate in the Central American country. To boot, the government gave each Salvadoran $ 30 worth of Bitcoin. As of this writing, the President’s Twitter account announces that “ChivoWallet”, The virtual wallet developed for the project had to be disconnected due to lack of capacity in the servers. Start with the left foot.
But it is not the only crypto advancement in that country. Last week we learned that the Government signed an agreement with Koibanx to develop the government infrastructure on the Algorand blockchain, a network developed by the economist Silvio Micali, a Turing laureate (something like the Nobel Prize in Computing) and that has a revolutionary transaction validation process called “Pure Proof of Stake” that promises to disrupt the industry with much higher speeds and costs to the current ones.
Koibanx, for its part, is a Latin American company that develops solutions on blockchain technology and whose founders, Edy Weber and Leo Elduayen, are Argentine. In March signed an agreement with Algorand, which immediately resulted in diverse applications such as, for example, the securitization of payment guarantees in Colombia.
The case of El Salvador is a clear representation of the debate that exists in the crypto world. On the one hand, there are those who only see potentiality as a form of money and on the other, those who believe that technology is much more useful as a decentralized registry.
Imagine if real property were registered in the blockchain. That would allow a Salvadoran to buy his house safely without having to go to a notary public. With crypto dollars on the blockchain, one could carry out the transaction through an “atomic swap” (available in Algorand) which, thanks to Smart Contracts, will only complete the transaction if the counterparty fulfills its part of the deal. Otherwise, it is voided after a while and the payment returns to the buyer (or the title to the property returns to the seller). That way it is no longer necessary to meet personally to sign anything and both sides can be sure that the other party will not be able to deceive them.
They transfer that greater efficiency to the financial system where to buy a share or take out a guaranteed loan requires the coordination of several actors in a bureaucracy that involves time and money. In a blockchain and with a couple of programming lines, everything is solved instantly and without counterparty risks.
Perhaps, for example, the raffle of judges or elections could be carried out on blockchain and in that way we would avoid suspicions due to adjudication of cases that we live in our country or violations of democracy such as the one that seems to have been generated in El Salvador.
It is important that the noises that are generated in the world of crypto “as money” do not cloud a super useful technology in various aspects of life.
Noises like the one made when Elizabeth Warren, a Democratic senator in USA, referred to the ecosystem as “the new shadow bank”(The new banks in the shadows). Let us remember that the “shadow Banks” are those that emerged strongly from the 90’s in the northern country and are characterized by providing similar services to banks but without proper regulation by the monetary authority.
The reason often cited for banning such unregulated activity is that if it became “too big to fail” it could put the financial stability of an economy at risk and, therefore, force the government to come to its rescue in case your investments failed. It is a typical case of what is known as “moral hazard” (moral danger): “if I take a risk and it goes well, I get the benefits, but if it goes badly, the government saves me”… It doesn’t work that way.
That is why numerous participants from the crypto world are choosing to move closer and closer to the status of a regulated bank. It’s what we saw two weeks ago when we commented that USDC had reported that it was going to back all of its crypto dollars with cash and Treasury bonds.
It is also the case of Avanti, which aims to become the first crypto bank member of the system of the Federal Reserve. About the end of last month presented his application before the authorities and clarified that this is different from the one he had requested in October 2020 when he only wanted access to the United States federal payment system.
Remember that banks issue new dollars when they lend. In the case of Avanti, it will be interesting to see if it will issue dollars directly on the blockchain. In that way, it would be a superior alternative to current stablecoins, which are tokens backed by real dollars in bank accounts.
But having a banking charter in the United States requires efforts that may not be worth it. What is certain is that the anarchic dream of operating money without any government surveillance is increasingly far from being a reality. Even Binance itself, the largest exchange in the world and whose headquarters is often a mystery, reported Through its CEO who plans to list the shares of its US subsidiary in three years. Let’s remember that Coinbase, perhaps its main competition, did the same on April 14.
At the opposite extreme are crypto exchanges like Uniswap that operate 100% in the decentralized world, without an identifiable owner whom to regulate. Of course, while this would allow them to avoid the clutches of the legislator, it also prevents them from accessing the fiat currency payment system.
The problem is that these applications, although they do not have owners whom the regulator can supervise, they usually have an associated company or foundation that is in charge of keeping the platform updated and that is financed with the same profits that it generates.
This is the case of Uniswap Labs, a company that is being investigated by the SEC (Securities and Exchange Commission) in a case that represents a clear challenge for jurists.
Technically they would not be those who run the exchange but a simple service provider. The owners are actually those who own the token UNI, which allows them to vote on initiatives proposed, for example, by Uniswap Labs.
Think of it as the equivalent of a company’s stock in the traditional world. That token is listed on the market and at the time of writing this note it is worth about US $ 30. When it went on the market it was worth only US $ 5 and was distributed in a very unconventional way. The owner of the platform gave it away to all the accounts that had used the platform even once. Each received the equivalent of about $ 1,200 out of nowhere, without prior notice. A joy that will not be tarnished even for those who have sold instantly and who missed the subsequent raise.
Some wonder how to know that the owners of Uniswap Labs are not the same who are now the majority holders of the UNI token and that, therefore, they continue to run the exchange in the shadows. Perhaps that move was to anticipate the SEC inspection that eventually occurred. It would be an interesting legal form: something like Limited Liability and … Anonymous. Not to mention the tax implications that this has.
It will be good material for lawyers to have fun with discussions on the matter. The legal will be a world that is clearly impacted by the new technology behind cryptocurrencies.
Whether due to cases such as El Salvador and its alliance with Algorand or the Uniswap case and the possibility of hiding share ownership, the truth is that like all new technology the important thing will be to try to take advantage of its benefits and not reject it just because it comes to disrupt the status quo.